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Wednesday, September 29, 2010

Josh Rogin has a very interesting piece up on The Cable this morning in which he reports on what seems to be a concerted message campaign by several senior officials in the Obama administration -- including Secretary of State Hillary Clinton, Treasury Secretary Tim Geithner, USAID Administrator Rajiv Shah, and senior representative to Afghanistan and Pakistan Dick Holbrooke -- urging Pakistan to reform its tax system (both by raising taxes on the wealthy and improving collection and enforcement mechanisms).

"This is one of my pet peeves: Countries that will not tax their elites but expect us to come in and help them serve their people are just not going to get the kind of help from us that they have been getting," Secretary of State Hillary Clinton told an audience Tuesday at the U.S. Global Leadership Coalition conference.

"Pakistan cannot have a tax rate of 9 percent of GDP when land owners and all of the other elites do not pay anything or pay so little it's laughable, and then when there's a problem everybody expects the United States and others to come in and help," Clinton said to a round of applause. She noted that Pakistan's finance minister is now presenting a package of economic and tax reforms.

Treasury Secretary Timothy Geithner, who was also on the same panel, drove home the message that countries who want U.S. development aid must adopt the reforms that Clinton is advocating.

"I've been doing this for a long time and I have never heard a discussion like this, where you have the secretary of state saying what she just said, which is recognizing that unless we are tougher on how we provide assistance...we should not be financing them at this level," Geithner said.

Panel moderator Frank Sesno noted that scaling back assistance to Pakistan, and countries like it, could conflict with other U.S. objectives in the region, such as bolstering the government's internal stability.

"All of these objectives are going to be in conflict at one time or another," Geithner responded. If the countries do not make the required reforms, "We're not going to be able to justify financing [them] on this scale," he said.

On Monday, Af-Pak envoy Richard Holbrooke made a similar plea while appearing on the Rachel Maddow show.

"Their maximum tax rates are much lower than ours, and there's a lot of tax evasion there, as has been well reported. And we can't ask American taxpayers to pay the burden if the Pakistanis don't raise their own revenue," Holbrooke said. "So I don't want to leave people with the impression we're going to pay for the reconstructionphase."

In an interview, USAID Administrator Rajiv Shah told The Cable that the multi-billion reconstruction effort that Pakistan faces in the wake of the flood crisis is "going to be much more successful" if Pakistan adopts the Obama administration's suggestions to ""implement a stronger tax regime that's ... more effective."

Looks like a full-court press to me. So far as I can tell, this is really revolutionary stuff. We're less surprised in the modern global security environment by one state taking an interest in what previously might have been considered to be the sovereign internal affairs of another, what with economic interconnectedness, so-called "superempowered individuals" and sub-state actors, and so on, but isn't this even a step beyond what we're used to seeing? It's one thing to say "we'd like to see the Pakistanis using the F-16s we're selling them to prosecute counterinsurgency operations on their northwest frontier rather than to defend against an imagined Indian threat," and it's quite another to say "we wish the Pakistanis would teach more math to third-graders." Yesterday's commentary seems much closer to the latter.

But even more than all that, here's what really worries me: are we so sure that we understand Pakistan's internal politics well enough to give guidance (or make demands) about potentially inflammatory domestic issues like taxation? Most of us are prepared to acknowledge that Pakistan at least has the potential to become -- if it's not already -- the most dangerous country in the world for the U.S., right? I don't really have enough area knowledge to say this for a fact, but it seems to me that one way to accelerate that development is to contribute to the sort of socio-economic/class stratification that could imperil the government from yet another direction, piling yet another threat on to that posed by the challenge of religious extremist groups/parties and those agitating for land reform and other measures of economic equality (who are already susceptible to manipulation by Taliban-type groups mentioned latterly).

Basically what I'm asking is this: are we sure we should be asking the Pakistani government to piss off rich people at the same time they're pissing off poor people, conservative people, very religious people, Indians, Baluchis, and Pashtuns? It might be good politics in the U.S. -- fair enough that people get annoyed about pumping U.S. aid dollars into a country that can't effectively collect its own legally and morally justified receipts -- but shouldn't the priority here be maintaining the stability of the Pakistani government?

Would be very interested to have actual Pakistan experts weigh in here (as well as all you development folks).

UPDATE: Whoops, in my rundown of people the government has pissed off, I forgot to include the military.

13 comments:

I guess one of the points being made in the NYT article linked in the update is that a refusal to raise taxes on the rich will further exacerbate the socio-economic tensions I've cited. I don't mean to suggest that the government should take the side of the landed rich just because it can't afford criticism from all sides, either. I don't know -- this is why I'm asking for educated opinion on this.

The relation of perceptual bias (in this instance, regarding the nature of Pakistan as the nation most dangerous for the U.S.)to media (and to manipulation of public perception by those who are wealthy enough to influence our media) might be illustrated by the concern you express.

Tax the wealthy? Perish the thought.

Yet another link you may find irrelevant:http://globalsociology.com/2010/09/28/class-warfare-illustrated/

IMHO, factionalism in the US is as great a problem for the US as anything happening anywhere else on the globe, and those who prefer not to be taxed, much less pay any of the costs of doing business, are the driving cause of that factionalism.

I'm going to chalk this disagreement up to a failure in reading comprehension. Can you please explain in clear language what exactly your objection is to this sentence:

Most of us are prepared to acknowledge that Pakistan at least has the potential to become -- if it's not already -- the most dangerous country in the world for the U.S., right?

NOTE: Not interested in a threadjack about class warfare, considering that "class warfare" is not a country, and thus cannot be "the most dangerous country in the world for the U.S." Cool? The wealth of others, including those who are wealthy enough to influence our media, is of no particular concern to me when I consider the various threats arrayed against our security. If you're not interested in participating in this conversation about Pakistan, cool, but I can assure you I'm not interested in participating in your nonsense.

I think Clinton's comment was pretty fair actually - why should the U.S. continue to give American taxpayers' money to a country whose elite doesn't pay their taxes? Yes, people might get angry, but it's not as angry as people in Pakistan who actually pay their taxes. If all the people who defaulted on loans or didn't pay taxes paid up, maybe we wouldn't be so dependent on foreign aid!

Since you got mad Twitter props for disavowing expertise on Pakistan, I also disavow expertise on Pakistan!

I think, though, as far as development and foreign aid go, we're seeing a shift in U.S. policy towards economic growth. In less free countries, economic growth is kind of crapshoot. For every Thailand, you have a Kuwait (whose growth rate over the last 50 years isn't that good, oddly.) So, promoting good governance is sort of like promoting economic growth and I think those are both things that would be good for Pakistan.

That said, good governance is more than raising taxes. In fact, even were the Pakistani government to raise taxes, would it necessarily have the immediate benefit of paying for the rebuilding of livelihoods in Swat? Pakistan has over $50 billion in external debt, if they were to raise taxes I think they might get some collectors calling. If they don't have the governance structures in place to collect taxes in the first place, how are they going to raise taxes and collect more?

If U.S. policy is really about developing Pakistan, it needs to be about real political reform, not just one sector of the bureaucracy. If the Pakistani government has no credibility now, it raising taxes isn't going to help its standing either at home or internationally. Insert something about corruption. [I bet that was in the Granta article.]

Plenty of other countries with poor governance and worse governance get U.S. aid dollars. To me, this sounds more like politicking. Obama is a Muslim, midterms are coming up, we're selling arms to Saudi Arabia, and now we're sending millions to Pakistan? You're raising my taxes but sending free money overseas? HEADS! HEADS WILL ROLL!

The problem is I can't imagine this will get much play with American constituents the same way it will overseas where it will (rightly?) be seen as egregious American meddling. Another threat to the stability of the government won't be good for anyone, rich or poor people. Or Americans who will end up having to pay for it later on.

Madhu - There seems no doubt that sufficient 'aid' will change cultures, and the nations in which they exist. It seems equally lacking in doubt that the changes that result will not be those expected by the instigators.

Rajiv Shah has a lot of experience with development in developing countries and his suggestions for Pakistan are dead on. Some of this stuff isn't that controversial.

Lets simplify things. India was a very poor country in 1991. Then India changed 180 degrees on a dime under the leadership of finance minister Manmohan Singh [helped by a financial crisis and IMF imposed austerity.] India imposed free market and pro business reforms. Fast forward 19 years. India is a huge and much envied international success story.

If Pakistan becomes another India; AQ/Taliban/Takfiri/extremism problem is mostly solved in South and Central Asia. The real objective, to put it crassly, is to transform Pakistan into another India [or Malaysia, or Indonesia, etc. etc.]

Ergo, Pakistan should probably do some of the things India started to do in 1991.

How can Pakistan possibly afford to pay for its COIN campaign, and how can Pakistani civil society weaken and supplant the crazies unless the Pakistani economy grows rapidly and increases tax revenues. Improving the Pakistani education is correlated with faster economic growth. Improving Pakistani education will likely do wonders to reduce Pakistani conspiracy theories. Something like a third of Pakistanis still believe that the "JOOOOS" did 9/11. I mean seriously. Not joking. Many Pakistanis still believe the 2004 Asian Tsunami was the result of some geological test by the "JOOOS", Hindus, and CIA.

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